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SECTOR / INDUSTRY	WORLD INDUSTRY ANALYSIS
BANK, FINANCE AND INSURANCE
DIVERSIFIED HOLDINGS
HOTELS AND TRAVELS
BEVERAGE, FOOD AND TOBACCO
TELECOMS
MANUFACTURING
TRADING
OIL FARMS
HEALTH CARE
LAND AND PROPERTY
PLANTATIONS
INVESTMENT TRUSTS
POWER AND ENERGY
CONSTRUCTION AND ENGINEERING
MOTORS
CHEMICALS AND PHARMACEUTICALS
DEPARTMENTAL STORES
FOOTWARE AND TEXTILE
SERVICES
INFORMATION TECHNOLOGY

Quoted Public Companies

SECTOR / INDUSTRY	INDUSTRY MARKET CAP (MN)	% OF TOTAL MARKET CAP	NO OF COMPANIES	AVE INDUSTRY PE RATIO
BANK, FINANCE AND INSURANCE	317,254	20.56%	42	10x
DIVERSIFIED HOLDINGS	302,287	19.59%	11	8 x
HOTELS AND TRAVELS	155,313	10.04%	33	12 x
BEVERAGE, FOOD AND TOBACCO	200,758	13.01%	21	5 x
TELECOMS	141,438	9.16%	02	9x
MANUFACTURING	86,800	5.58%	35	11x
TRADING	75,093	4.86%	13	8x
OIL FARMS	54,002	3.49%	05	9x
HEALTH CARE	30413	1.96%	07	9x
LAND AND PROPERTY	30,233	1.95%	20	5 x
PLANTATIONS	29,785	1.91%	19	7x
INVESTMENT TRUSTS	25,390	1.65%	10	10 x
POWER AND ENERGY	21,444	1.38%	04	10 x
CONSTRUCTION AND ENGINEERING	20,761	1.34%	03	15x
MOTORS	20,612	1.33%	06	7x
CHEMICALS AND PHARMACEUTICALS	17,400	1.12%	11	8x
DEPARTMENTAL STORES	6,914	0.45%	05	9x
FOOTWARE AND TEXTILE	5,363	0.34%	03	7 x
SERVICES	4,267	0.26%	06	7x
INFORMATION TECHNOLOGY	348	0.02%	01	7 x
TOTAL	1,545,878	100%	257

Last updated on 08th July 2010 by rightBETA research division

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Minimizing Credit Crunch for lawyers

Even though the profits and cash flows generated from the conveyancing department has been regarded as cash cows in some countries, this has very little relavance to many of our law firms in Sri Lanka. However, this has a knock- on effect on other departments such as family and probate. There is also a downturn in the number of commercial deals being completed. It is however clearly apparent that this is not due to lack of potential clients, but because of the difficulties in obtaining funding to finance the deals. This means that the transactions are taking much longer to complete or if they are completed at all, the fee and cash flows have declined by a significant margin. Cash Cows and Problem child Nevertheless, it is acceptable that the troubles we have in the current climate could be compensated by a rise in litigation and insolvency work. However, even though the lawyers in these areas seem to be busy, it is still difficult to see the outcome in the bills delivered and cash collected without delay. The inherent nature in these types of work is that it takes a longer time to be able to deliver bills and to get paid if that stage is reached at all. And in the facts that the clients will be more likely to delay or default on payment of fees, then it becomes clear that increased lock up is the result and the key concern for many lawyers at present. The attitude of the banks to this type of phenomenon is fairly uniform. For them, cost of capital has increased and they are attempting to renegotiate their terms to make it more expensive to borrow money, and they are certainly against lending to firms that enable partners to maintain their drawings level without any distruption. The one bargaining tool that most law firms have when it comes to agreeing deals with the banks is the strength of their clients’ account. Clients’ balances may have fallen due to reduced activity but they are more important than ever to the banks and as a result, firms should use this point as an advantage in dealing with the banks and other financial institutions. Owing to the facts mentioned above coupled with redundancies, pay cuts, failure of some firms is inevitable resulting in a lot of mergers and acquisitions in this area, which is already taking place in some parts of the world and the UK. What can be done It is vital in this current climate to have a robust management information system in place. The regular production of accurate management information is more important than ever as this is their early warning system. The information produced must contain cash flow forecasts and this has to be done at least on a monthly basis in order to show future cash requirements of the business. Cash flow requirements need to be calculated in advance so that firms are aware of the peaks and troughs allowing them to make decisions in terms of cost reduction and further finances. This will allow the firms to work with the lenders. The advance notice certainly helps them and it gives them more confidence to support the firms consistently. They are much less likely to help if they receive a last minute request. The bankers are being quite harsh with many businesses in the current climate particularly lawyers and solicitors. However the funding institutions are much more likely to support the legal practitioners if they can get them on side with what the firms are trying to do. If it’s not done so already, it would be a good idea to arrange a meeting with your bank to outline your business plan and forecasts to show them how you think the downturn will affect you and how you propose to deal with the issues. It is also important to monitor activity levels and new instructions. Performing this exercise will help with preparing the forecasts. At the same time, it will also show how busy the fee earners are. Monitoring the level of new instructions will also indicate whether there might be a fall in activity during the next few months and will therefore help you to make appropriate decisions in terms of how many fee earners are required. .

'Don't put all your eggs in one basket' is a well-known proverb, which summarizes the message that there are benefits from diversification. If you carry your breakable items in several baskets there is a chance that one will be dropped, but you are unlikely to drop all your baskets on the same trip. Similarly, if you invest all your wealth in the shares of one company, there is a chance that the company will go bust and you will lose all your money. Since it is unlikely that all companies will go bust at the same time, a portfolio of shares in several companies is less risky. This diversified portfolio will clearly be preferred to either asset alone by risk-averse investors. The risk-neutral investor is indifferent but the risk-lover may prefer not to diversify. This is because, by picking one security alone, the risk-lover still has a chance of getting a higher return and the extra risk gives positive pleasure. Risk-averse investors will choose the diversified portfolio managed by a proficient stock broker, which gives them the lowest risk for a given expected rate of return, or the highest expected return for a given level of risk .Diversification does not always reduce the riskiness of a portfolio. Certain types of risks such as political risks etc can not be mitigated in its entirety.

The old motto that “cash in king” has never sounded truer than it does in the current economic climate. Without healthy cash flow, businesses can not hope to survive for the foreseeable future. When considered the current credit challenged times, cash flow management and forecasting takes on ever a greater significance. The lack of credit available for businesses from traditional sources has led to an increase in enquiries into alternative funding options such as asset-based lending (ABL). According to a research carried out in the UK, it has been revealed that the number of business clients being refused finance by traditional lenders has virtually recently tripled. In addition, about 60 percent reported that there was an increase in business owners proactively seeking to learn more about alternative methods of funding. Today’s financial managers must understand the cash dynamics of their business, the key to successful financial management at present is to use this understanding to anticipate these issues and then communicate with funding institutions and stakeholders early and honestly. This goes in line with a very important corporate governance principle known as “transparency”. REAL WORLD SOLUTIONS Businesses looking to improve vital cash flow, both short and long term, can consider receivable finance, which enables funding to be leveraged against unpaid invoices without waiting for customer payments thereby delivering an immediate boost to cash flows. Revolving receivables and inventory finance can be combined with fixed assets and collaterised term loans to provide even more liquidity and this can be the lifeblood to many companies during this debt ridden turbulent era. ABL unlocks the hidden value of a business’s assets by raising funding from various assets a business owns such as debtors ledger, inventory and PPE. This can then be used to ensure working capital enable stability, growth or even turnaround plans to be realized offering stressed businesses extra headroom required to execute their well-laid restructuring plans. For companies willing to re-engineer, re-structure and create a viable business plan going forward, this facility can make all the difference. But only if the lender is brought in at the right time to work in partnership with the management team. Financial modeling is vital and tight cash flow management is often the difference between the success and failure. The ability to successfully predict the true cash dynamics of a business comes from a clear financial overview. Using this overview and conservative (set aside your aggressiveness for the time being) model to predict the cash flow in the current climate is essential. If the financial information is accurate, clear and up to date, any business’ financial performance can be modeled to understand how bank heads and covenants are affected by changes in the main business variables (sales, margins, capital expenditure, and debtors’ payments rates). Clearly working in close partnerships with a lender has never been as important as it is now. During these fast moving times, cash flow can change for better or worse almost overnight. Once the management team can anticipate likely financial and cash flow issues, they must be communicated in a timely fashion to funding providers and other stakeholders. If possible, always avoid giving this important group of people surprises. .

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Minimizing Credit Crunch for lawyers